Deductions from Damages: Collateral Benefits

• Author: Jamie Cassels
• Pages: 480-519

480

CHA PTER 13

DEDUCTIONS

FROM DAMAGES:

COLLATER AL BENEFITS

A. INTRODUC TION

1) The Issue Explained

Closely related to the issues of mitigation and “avoided loss” is the

subject of collateral benef‌its. This subject arises whenever a plaintiff’s

loss (as a result of breach of contract or tort) is apparently ameliorated

by a payment from a third party (or “collateral source”). The question

is whether that payment should be taken i nto account in calculating

the plaintiff ’s loss, thus reducing the damages payable by the defendant.

Collateral benef‌its problems ari se in many contexts in civi l litiga-

tion. For example, in wrongful dism issal and personal injury c ases, the

plaintiff may receive employment insurance, welfare, or other assist-

ance that cushions the wage loss. In pe rsonal injury cases, t he plaintiff’s

actual expenses for the cost of care and income losses may frequently

be paid for by insurance or offset by income or benef‌its in kind from

a variety of sources. Public health-care benef‌its will frequently cover

many of the plaintif f’s medical expenses. Family members and charit-

able institutions may provide care to t he plaintiff free of charge. The

plaintiff ’s wage loss may be defrayed, partly or in whole, by disabil-

ity insurance, an employer’s wage continuation plan, or a benevolent

fund. In every cas e, the question is whether the benef‌its received by the

plaintiff cancel the loss suffered.

Deductions from Da mages: Collateral Benef‌it s 481

2) Framework for Analysis

The tension over collateral benef‌its is acute. On the one hand, to p ermit

the plaintiff to cl aim a loss or expense th at is not actually incurred (or

which is offset from another source) appears to overcompensate the

plaintiff. For example, a person who is injured but continues to receive

his salar y from a disability fund w ill receive a “windfall” or “double

compensation” if he is also perm itted to claim lost income from the

defendant. On the other hand, to exclude such losse s from the plain-

tiff ’s claim gives to t he defendant the benef‌it of the program, essentially

“subsidizing” the defendant’s negligence. For those who believe that tort

law should play a deterrent role by charging wrongdoers w ith the full

costs of their activities, such a subsidy undermines the social purpose

of the law.

The law regarding collateral benef‌its is always evolving, and the

questions raised l argely involve policy considerations. The “fundamen-

tal” policy of tort is compensation of the plaintiff, not punishment of

the defendant, and from this perspective, a failure to deduct collateral

benef‌its amounts to double compensation or a windfall to the plaintiff.

In Ratych v Bloomer,1 McLachlin J st ated:

The function al rational [sic] for the award of damages adopted in t he

trilogy of A ndrews, Thornton a nd Ten o underlines t he necessity of

using the plai ntiff’s actual los s as the basis of hi s or her damages.

The award is justif‌ied , not because it is appropriate to puni sh the de-

fendant or enrich the pl aintiff, but because it w ill serve the pur pose

or function of restor ing the plaintiff a s nearly as possible to hi s pre-

accident state or alternat ively, where this cannot be done, providing

substitutes for what he lost.

The trilogy follows the mo dern trend in the law of damage s away

from a punitive approach which empha sizes the wrong t he tortfea-

sor has committed. The l ink between the moral culp ability of the

tortfeasor and h is obligation to pay damages to the pers on he injures

is frequently tenuous in our t echnological and mechanical er a. A mo-

ment’s inattention is all t hat is required to tr igger astronomical da m-

ages. The risks in herent in such activities as the use of our h ighways

by motorists are i ncreasingly recogni zed as a general social bu rden.

In this context, t he maxim that compen sation must be fair to both

the plaintif f and the defendant seems emi nently reasonable . . . . Th at

1 [1990] 1 SCR 940 [Ratych].

REMEDIES: THE L AW OF DAMAGES482

fairnes s is best achieved by avoiding bot h undercompensation and

overcompens ation.2

Thus, an emphasis on “compensation” indicates a general rule of

deductibility. As McLachlin J concluded, it is implicit in the compen-

sation principle that the “plaint iff should not recover unless he can

demonstrate a loss, and then only to the extent of that loss.”3 Double

recovery violates thi s principle. While this may seem to provide a bene-

f‌it to the defendant, this concern i s attenuated by the widespread use

of liability insur ance, since often it will be the third-pa rty insurer who

will be bea ring the costs and not the defendant personally. Also per-

suasive is the point that McLachlin J makes concerning the problem

with assign ing moral culpability to certai n negligent actions commen-

surate with their often catastrophic results. With powerful m achines

(and complex science) comes the potential for great harm even when

reasonable care is t aken to prevent it.

However, tort law is often stated to have a deterrence function as

well. Under the deterrence theory, tortfeasors should bear the full cost

of their wrongdoing. This is said to provide incentive s for those en-

gaged in potentially har mful or dangerous activities to t ake into ac-

count the full societal costs of those activities. On thi s basis, collateral

benef‌its should not be deducted from damages awards, si nce deduction

would mean the benef‌it would inure to the defendant who would other-

wise be required to pay the full cost of the wrongdoing. And in addi-

tion to deterrence, many f‌ind it disturbing that the wrongdoer should

get “credit” for payments made to her victim. These notions were ar-

ticulated by Cory J in Cunningham v Wheeler:4 “Tort recovery is based

on some wrongdoing. It makes little sense for a wrongdoer to benef‌it

from the private act of forethought and sacrif‌ice of the plaintif f.”5 Thus,

a plaintiff may end up recoveri ng more than her actual loss even if a

court disapproves of this outcome.6

On this view, non-deductibility furthers the principles of deter-

rence and avoids the moral dilemma of giv ing the wrongdoer the bene-

f‌it of payments intended for the plaintif f. It is said that the existence

of liability insur ance signif‌icantly undermines the deterrence rationale

of tort law (since damage awards are paid by insurers, not by wrong-

doers); however, as Calabresi has argued, even with insurance, tort l aw

2 Ibid at 963 [emphasis in or iginal].

3 Ibid at 981.

4 [1994] 1 SCR 359 [Cunning ham].

5 Ibid at 4 01.

6 See Zacharias v L eys (2005), 36 CCLT (3d) 93 at para 40 (BCCA), Southin JA.